Apple Inc. (NASDAQ:AAPL) stock has been on an incredible run for … well, a while. Shares are up an incredible 65% in the last year alone, trouncing the 12% returns of the S&P 500 in embarrassing fashion.
The only problem? If part of that run-up was driven by big expectations for Apple Watch, then investors are in trouble.
One bold analyst at Societe Generale, Andy Perkins, made a gutsy call on Wednesday, downgrading AAPL stock from a “buy” to a “hold” rating. His $130 price target leaves a measly 3% or so of upside potential for Apple stock, a far cry from the meteoric returns shareholders have grown accustomed to.
That’s partially because of the overblown hubbub surrounding the Apple Watch, which by Perkins’ calculations may only account for a lousy 1.7% of Apple’s fiscal 2015 sales.
The not-so-subtle underlying point is that all this Apple Watch hoopla has made AAPL stock — dare we say it — overvalued.
Much Ado About Nothing
Societe Generale isn’t the only one underwhelmed by the prospects of the Apple Watch. Early reviews for the new line of wearable tech, which consumers can pre-order beginning April 10, have been muted at best.
In fact, AAPL may have reason to worry. From complaints about Siri’s incompetence, to the general malaise of the slow-running software, to its short-lived battery life and poorly planned alert system, complaints by early tech reviewers have run the gamut.
Socrates, one of the pioneers of Western philosophy, once famously proclaimed that “the unexamined life is not worth living.” Rejecting this timeless wisdom, AAPL investors have refused to step back and ask just what’s so groundbreaking about a small, shiny device whose unique selling points include animated emoji and a display that shows you where the sun is in the sky. (Just in case you couldn’t find it.)
Even in light of these inconvenient truths, some tech bloggers haven’t woken up and smelled the coffee. Take David Pogue, a very competent and entertaining reviewer for Yahoo! Tech. Even he, bless his soul, has been led astray. Despite acknowledging that people “have made it clear that we don’t want smartwatches,” he goes on to hail Apple Watch as “the first truly new product from Apple since Steve Jobs died.”
While it’s technically true that the Apple Watch is the first new product line since Steve Jobs’ death, I cringe at the associations the phrase “truly new” brings, and reject outright the nuanced implication that there’s anything revolutionary about AAPL’s newest concoction.
I own AAPL stock; I have for years. For purely financial reasons, I hope Apple Watch becomes the best-selling product of all-time, overnight. But I cannot reach the level of self-delusion required to hail the Apple Watch — a largely redundant and unnecessary accessory to the iPhone — as the first step in post-Jobsian innovation for Apple.
I realize that Apple Watch sales will do whatever they’re going to do no matter what my opinion is. But from a competitive standpoint, we should also remind ourselves that Google Inc (NASDAQ:GOOG, NASDAQ:GOOGL) is dedicating serious attention to smart timepieces of its own.
And while animated emoji are hard to beat and all, I have good reason to believe Google Watch will eventually slaughter Apple Watch in worldwide sales.
Long story short: Don’t be surprised when Apple Watch fails to catapult the AAPL stock price higher.
As of this writing John Divine owned shares of AAPL stock, GOOG stock and GOOGL stock. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
